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Leasing predicted to make gains in Class 8 segment

Oct. 17, 2014

Leasing companies should start to capture more business in the Class 8 market over the next six years, according to new analysis conducted by global consulting firm Frost & Sullivan – particularly as a range of truck-related “extras” from preventive maintenance to telematics services are expected to be included in leasing packages down the road.

“Added-value services such as preventative maintenance, fleet management, and telematics are becoming key selling points for OEM captive lenders providing them a competitive advantage over their non-captive counterparts who can offer a lower annual percentage rate,” Wallace Lau, a senior industry analyst with the automotive & transportation at Frost & Sullivan, told Fleet Owner.

“With total cost of ownership (TCO), fleet profitability and productivity calculations becoming increasingly important, those services allow fleets to focus on their core business operations, which is freight movement,” he added.

“Class 8 trucks are quickly becoming more complex electronic machines, where maintenance procedures are handled through advanced diagnostic computers/systems,” Lau pointed out. “[That’s] resulting in an emerging trend of where fleets are now relying on the expertise of OEM trained technicians and/or dealerships to maintain their equipment in top shape, running their in-house repair shops and improving up time via truck rental services, mobile maintenance, and prognostics.”

Frost & Sullivan’s survey indicates that those services will be more in demand in the near future to help simplify the daily operations of fleet managers, as well as improving overall fleet efficiency. Thus ways to acquire them via more “simplified” financial transactions become more critical, Lau explained.

Other findings from the firm’s leasing survey include:

  • The non-captive channel will remain the choice of consumers despite losing some market share; accounting for 55% of the Class 8 leasing market by 2020.
  • Captive OEM-based leasing firms will account for 40% of the market and are will gain traction with an expected 5% growth by the year 2020.
  • In 2013, 68% of consumers leaned towards financing their trucks and another 6% have used the cash payment options, with leasing accounting for the remaining 26%. Both cash and lease purchases are expected to experience a 2% growth by 2020.
  • The changing consumer behavior is not expected to affect their preference in payment options over the forecast period. Leasing has made strides to offer added benefits to the consumer; however financing and owning a truck outright as an asset remains a crucial factor in trucking.
  • The approaching equipment replacement cycle is expected in 2014 and 2015 with total Class 8 production estimated at 245,300 and 253,100 respectively. However, this replacement cycle does not signify fleet size expansion as fleets are only looking to replace old equipment.
  • Customized fulfillment solutions and flexible service options such as maintenance services, fleet management, contract maintenance and mobility solutions are expected to be a key OEM captive value propositions to handle the fundamental change in consumer behavior over the next six years.

Lau said Frist & Sullivan’s data indicates that the advantages of leasing will also grow as it gives fleets the ability to switch-out equipment on a regular basis to gain more fuel-efficient vehicles and lower monthly payments.

“Through our research we found that fleets choosing leasing were primarily attracted by the lower monthly payments, which allowed them to free up capital and cash flow to grow other aspects of their business,” he explained.

“Not all fleets can afford to own numerous Class 8 vehicles at one time and leasing provides a strong alternative for fleets needing equipment replacement or expansion,” he pointed out. “However, we don't expect to see a large growth in the leasing for Class 8 vehicles over the forecast period.”

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